an NATP presenter at an IRS forum on Schedule C issues said you could subtract cost of goods sold from the income reported on Line 21. IRS says report all income but does not distinguish between revenue and income, as you would on a Schedule C. Any comments?
Gross income from hobby is reported on line 21 (other income). Deductions are taken on Schedule A.but (generally) only to the extent of the gross income from that hobby. The deduction is also reduced by
The NATP presenter is correct. Your gross income (GI) from a not-for-profit activity is computed in the same manner you would compute it for a profit activity. You take your gross receipts and subtract your cost of goods sold to arrive at GI for Line 21. If you had returns and allowances you could also subtract that to compute GI.
§ 280E. Expenditures in connection with the illegal sale of drugs
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
I may have miscited the subsection. However, it might be case law under this or subsection (c). Either way, violations of law are not considered "ordinary and necessary" as stated in subsection (a).
I'm guessing here (we need a lawyer). Marijuana is still classified as a Schedule I drug. However, one may conclude that Schedule I marijuana is non-prescribed marijuana as Schedule I drugs and substances require: There is no currently accepted medical use in treatment in the U.S. and there is a lack of accepted safety for use of the substance under medical supervision. It seems to me that prescribed medical marijuana would be excepted from Schedule I.
I did a little research on CA law, as that state has the largest number of dispensaries, CO, my closest neighbor that has legalized it and my home state of NM. CA law is quite clear that dispensaries must be non-profit organizations. It also appears that you can't sell for cash. (That's not to say that every dispensary is following the law.) I could not find anything in CO law that requires the licensed establishment to be nonprofit nor could I find anything in NM law that requires the licensed producer to be nonprofit.
I'm not sure what all this means for tax purposes.
According to medicalmarijuana.procon.org there are now 14 states + D.C. that have legalized MM and two states that have laws that look favorably at MM (AZ allows a Dr. to prescribe and MD allows a defendant to use MM as a defense.
If anyone wants to look up the laws for each state, here is the link: